April 2010 Qu 6: If a country has a current account deficit then: A Gross Domestic Product is greater than Gross National Product. B Gross Domestic Product is less than Gross National Product. C Gross Domestic Product is the same as Gross National Product. D We cannot say whether Gross Domestic Product differs from Gross National Product from this information. Correct answer is D, but I'm not too sure why. We have the equation: GNY at market prices = GDP at market prices + net income from abroad so I thought that current account deficit ==> net income from abroad is negative, meaning GDP is greater than GNY, but obviously something in my reasoning is incorrect. Either the "at market prices" bit or the fact that current account deficit implies net income from abroad is negative. Any help would be great. Thanks
Net income from abroad is only one component of the current balance, so the current account deficit can't tell us anything about the relationship between GDP and GNP.
